Forum examines housing situation

Jan. 17, 2008

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When Teri Ross moved to Brainerd to work as a licensed practical nurse in 2004, she bought a $100,000 home with woodwork and a fenced yard for her three dogs. In an attempt to save money on heating and increase the home's value, she rolled the cost of new siding and windows into an adjustable-rate mortgage the next year.

"I trusted the people that did the refinancing," Ross said.

After two years at a fixed rate, the mortgage began adjusting upward every six months. Now with $1,300 monthly payments — nearly double that of her original mortgage — she's fighting to stay out of foreclosure.

Ross's situation is not unique in Minnesota, housing officials said Wednesday during a forum with Republican U.S. Sen. Norm Coleman at Whitney Senior Center.

Statewide issue

Last year more than 80,000 families fell behind on their mortgage payments, and more are expected to this year, said Warren Hanson, CEO of the Greater Minnesota Housing Fund.

"It is not just a Minneapolis and St. Paul issue," Coleman said. "It's an issue for all of Minnesota."

And that's especially true in Central Minnesota. Wright, Stearns and Sherburne counties had the highest number of foreclosures of outstate Minnesota counties in 2007, according to the GMHF.

Benton County was also hit hard. Using recent population estimates, Benton County saw 4.5 people per 1,000 foreclose on homes in 2007, compared with 2.5 per 1,000 in Stearns County.

Proposed legislation

Coleman has introduced legislation that aims to help those with looming foreclosures buy time until they can refinance it into a traditional fixed-rate mortgage.

One, the HOME Act (S. 2201), would allow homeowners behind on the mortgage payments to withdraw up to $100,000 penalty-free from their retirement accounts. It also would make withdrawals tax-free as long as it is paid back within three years.

It's an attempt to help low- to middle-income homeowners, he said, and is modeled after the Hurricane Katrina emergency tax relief legislation. The bill has been referred to the Senate Committee on Finance.

But critics say dipping into and needing to repay retirement accounts is not a real solution for many working families.

"Facing a choice between homeowner security and retirement security is absolutely no choice at all," said Donna Cassutt, Minnesota DFL Associate Chair.

About a third of subprime loans in Minnesota were granted to people who earn between $50,000 and $75,000 a year. About a third of people in that income range contribute to a 401(k) retirement plan, with an average account value of $22,000.

"It's a piece of the puzzle," Coleman said. "This is not a silver bullet. You have to put a lot of things on the table and do as much as you can."

In December he introduced the Community Foreclosure Assistance Act of 2007 (S. 2455), which would provide $1 billion in emergency community development block grants for communities and states to respond to the foreclosure crisis.

The funding could support mortgage counseling efforts or prevent neighborhood blight caused by abandoned or foreclosed properties, he said. It also could assist renters who have lost their homes because of foreclosure. The bill has been referred to the Senate's Committee on Banking, Housing, and Urban Affairs.

"I'm a believer in the broken window theory," Coleman said, referring to the idea that small signs of neglect, such as a broken window or graffiti, can lead to larger issues, such as crime.

"It affects that entire neighborhood," Mayor Dave Kleis said of a foreclosed home. "It affects the entire city when we have homes that are empty. There has to be some way for us to deal with that."

Reaching out

In her struggle to keep her house, Ross dipped into her retirement savings. She also took renters, picked up extra shifts and has cut out nearly all extra expenses.

"I tried to refinance, and there's not a company out there that I tried that would touch me," she said.

She then tried to sell her house last year, but realized she would have to pay $5,000 for closing costs and real estate fees. At the time, it was worth less than what she owed.

Then her car broke down. She switched jobs, taking one she could walk to, with a $2 pay cut.

"It's the things that have happened on the housing market and the job status," she said. "It's circumstances that hurt us."

Ross shared her story at Wednesday's forum in part because she wants others to learn about adjustable rate mortgages and that there are agencies and nonprofits that can help.

She is working with Lutheran Social Service; many nonprofits and agencies are ramping up their foreclosure prevention efforts in Minnesota.

"They really need to be careful," Ross said of those considering adjustable-rate mortgages.